September 15, 2017 | Policy Brief

Turkish Officials Charged in Iran Sanctions-Busting Case

September 15, 2017 | Policy Brief

Turkish Officials Charged in Iran Sanctions-Busting Case

U.S. authorities last week charged Turkey’s former economy minister with conspiring to evade sanctions against Iran. The fourth superseding indictment in a case that initially involved Iranian-Turkish gold trader Reza Zarrab and two Iranian accomplices has brought the total number of defendants to nine. The issuance of an arrest warrant for a former Turkish minister ahead of President Recep Tayyip Erdogan’s upcoming visit for the UN General Assembly has made headlines in Turkey, and will further complicate Ankara’s already-stormy relations with Washington.

Zafer Caglayan, who had become Turkey’s economy minister in July 2011, resigned shortly after the December 2013 graft probe that implicated four ministers in accepting bribes from Zarrab. Caglayan allegedly received tens of millions of dollars in cash, gems, and luxury goods, including a piano and a $350,000 watch. U.S. authorities have issued an arrest warrant for Caglayan, but not yet an Interpol red notice. The former minister, however, has been cautious, and to avoid arrest, he reportedly has not left Turkey since the graft probe.

Following the charges against Caglayan, President Erdogan immediately came to the aid of his former minister and slammed the U.S. over the indictment, claiming that the action taken against the minister is “a step against the Turkish Republic.” Turkey’s current economy minister also defended his predecessor, saying that “it is no concern to Turkey if Caglayan acted against interests of other countries.” In contrast, Turkish analysts warned that the UN sanctions against Iran were also binding on Ankara, thus Turkish officials’ hasty remarks could amount to self-incrimination.

Meanwhile, the superseding indictment has drawn further attention to Turkey’s second-largest public lender, Halkbank. In March, U.S. authorities arrested the bank’s Deputy General Manager Mehmet Hakan Atilla for circumventing sanctions against Tehran’s illicit nuclear program. Atilla has pleaded not guilty, and awaits trial in New York, where proceedings are set to begin on October 30.

In addition to targeting Caglayan, last week’s indictment added two of Atilla’s Halkbank colleagues to the case: Suleyman Aslan, the bank’s former general manager, and Levent Balkan, former assistant general manager for international banking. While Halkbank itself is not part of the investigation, other foreign banks like BNP Paribas have faced multi-billion dollar penalties when implicated in sanctions-evasion schemes.

The involvement of an increasing number of Turkish institutions and public figures in the upcoming Reza Zarrab trial is certain to haunt both Turkey’s domestic politics and its relations with the U.S. The fallout from the case has the potential to hurt the Turkish financial sector and the economy, and hence Erdogan’s reelection chances in the 2019 presidential elections. The Turkish president will definitely step up anti-American rhetoric to push back against what he sees as a direct threat to his political future, further undermining Ankara’s already-stormy relations with Washington.

Aykan Erdemir is a senior fellow at the Foundation for Defense of Democracies and a former member of the Turkish parliament. Follow him on Twitter @aykan_erdemir.